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CRA amends Taxpayer Bill of Rights

Forgive me for saying this about a government publication, but Canada’s Taxpayer Bill of Rights (TBR) really is a misleading document. It styles itself as a “Bill of Rights,” but it can’t be enforced in any legal way. The recent amendment to it announced on June 26 of this year is more of the same kind of thing. The amendment adds Article 16 which gives the taxpayer “the right to lodge a service complaint and request a formal review without fear of reprisal.” But, as is the case with the other so-called “rights,” the amendment provides nothing in the way of a substantive legal remedy to a taxpayer looking for damages for conduct by the CRA that violates this new “right.”

Based on my own experience (generally positive) dealing with CRA officials over the years, I’m a skeptic when it comes to the need for or – the benefits of – the TBR. That being said, there have been several recent court decisions that indicate to me that something disturbing happens when CRA officials decide that certain types of tax planning are improper. Three cases are worth noting in this regard: RBC Life Insurance Corp (FCA); Ficek (FC); and Gordon (FC).In each case the CRA was criticized for the way it misused its administrative powers to assess and collect tax.

In RBC, the CRA issued requirements to the taxpayer and other insurance companies to provide information regarding the participation of unnamed clients in so-called 10/8 plans. From the evidence at the hearing of a motion to vacate the requirements it was apparent that CRA officials failed to disclose relevant information to the court when making the initial application for the order. The CRA, it appeared from the evidence, issued the requirements as part of a strategy to chill the use of 10/8 plans by the insurance industry, not to test the accuracy of returns filed by individuals participating in such plans.

A somewhat similar set of circumstances was before the federal Court in Ficek. Here the issue involved a CRA attempt to discourage participation in donation tax shelter plans. The Winnipeg TSO decided that plans offered by a particular promoter were fraudulent and that steps were required to prevent that party from continuing to market its product. It decided not to assess any return in which a claim was made for a donation scheme contribution until an indefinite future date. Ficek was one of thousands of taxpayers affected. She applied for an order directing the Minister to assess her return. The court held that the Crown’s real purpose here was to deter taxpayers generally from participating in the donation tax plan and agreed that the Minister had not complied with her statutory obligation to assess Ficek’s tax return “with all due dispatch.” It was wrong for the CRA to ignore its obligation to do so because it believed the donation scheme to be ineffective or fraudulent. Whether or not that was so was a matter for the Tax Court to decide, and the CRA acted improperly in attempting to use its administrative powers to impose its view of the proper result.

Gordon is in some ways the most disturbing of the three cases. He sued the Crown in the Federal Court claiming among other things damages for alleged negligence on the part of the CRA in investigating SR&ED deductions claimed by some 200 of his clients. In his claim, Gordon pleaded that the CRA deliberately structured the investigation to destroy his business. He said that the lead assessor knew, or ought to have known, that the fundamental basis for her position was unsustainable. Also, in the course of their investigation, the CRA assessors working under her direction intentionally conveyed to Gordon’s clients that his practices were fraudulent. These actions, he alleged, scared off the clients and his business suffered considerably. He also alleged that the lead assessor conveyed to her staff that Gordon’s methodology for establishing SR&ED claims was illegal when it was not. Many valid claims were denied as a consequence. In reply, the Crown said that the CRA had no recognized legal duty to conduct its audits properly, so it was not liable to the taxpayer even if its conduct was negligent.

A common theme in these cases is the fact that the CRA’s actions were prompted by what it saw as unacceptable tax planning. Officials believed that aggressive action was required –and appropriate – to counter what they saw as abuse. And perhaps they were right in thinking that the arrangements were not supportable in law. But that is no justification for abusing their very substantial administrative powers. Taxpayers are up against a stacked debt when suing the Crown; the price in terms of time and money can be overwhelming. The TBR is of absolutely no help here, even if the CRA is shown to have acted improperly. As other cases have shown, even if taxpayers can prove damages attributable to improper actions by CRA, they have very little chance of recovering damages under the law as it now exists. (The Gordon case may shed some light on this in due course.) In the meantime, the addition of Article 16 does little more than serve as a reminder that the “rights” in the TBR have very little if any substantive effect.